Kraft's Second Quarter Shows Payoff From Marketing Efforts

Revenue, Earnings Up Despite Difficult Economy; CEO Rosenfeld Vows to Keep Spending

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CHICAGO ( -- Kraft reported a stronger-than-expected second quarter this morning, thanks in part to increased marketing spending.
Kraft pointed to Mac N' Cheese, Kraft cheese and processed meat as contributors to increased sales.
Kraft pointed to Mac N' Cheese, Kraft cheese and processed meat as contributors to increased sales.

"In terms of building our brand equities, our investments in product quality, marketing and innovation continue to pay off," Kraft chief executive Irene Rosenfeld said during an earnings call with investors. "In this difficult economic environment, our reframing efforts across the portfolio have further demonstrated the value proposition of our brands."

Earnings rise
Kraft's net revenue was up 21.4% to $11.2 billion, and net earnings were up 4% to $732 million from $707 million a year ago. The company pointed to Mac N' Cheese, Kraft cheese and processed meat as contributors to increased sales during the period. Ms. Rosenfeld underscored that the company's value positioning seems to be gaining traction, particularly with Wal-Mart customers.

The second quarter marked the midpoint of Ms. Rosenfeld's three-year turnaround plan for the company, and analysts seemed sated by results. In a research note, David Palmer of UBS speculated that the period could mark the beginning of the "long-awaited turnaround."

As part of this effort, Ms. Rosenfeld has promised increased marketing support and had projected spending to reach up to 9% of total sales by the end of the year. Based on increased sales, however, she said the company will miss that mark, but expects spending to increase by $200 million this year.

Planning to spend more
"I feel very good about our ability to continue to make the necessary investments in the brand even in the face of the challenging cost environment," Ms. Rosenfeld said. "So you will see our spending up both in in the quarter and you will see it up for the full year."

In terms of measured media, Kraft's 2007 spending passed the $1 billion mark, up from $966 million in 2006, according to TNS Media Intelligence. But TNS shows measured-media spending down slightly in the first three months of 2008, to $236.6 million, from $237.4 million during the same period in 2007.

Kraft and competitors such as Kellogg and General Mills have all boosted marketing support in the past year to bolster known brands against necessary price increases for consumers as ingredient costs remain historically high.

The Northfield, Ill.-based company has rebranded its coffee and salad dressings in the last year, and sales have rebounded. Investors were clamoring for the divesture of both businesses last summer. Ms. Rosenfeld anticipates product innovations such as the reformulated salad dressings and Nilla Cakesters to be big contributors in the second half of the year.
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